The Hang Seng Index retreated by over 1.5% on Friday, erasing some of the gains made earlier this month. It dropped to a low of H$23,220, down from this month’s high of H$23,927. It has also fallen by 6.65% from its highest point this year.
Why the Hang Seng Index fell
The Hang Seng Index, which tracks the biggest Hong Kong companies, came under pressure as concerns about trade continued.
This sell-off happened after a US court allowed Donald Trump’s tariffs to continue for now, reversing another decision that ended.
The sell-off then accelerated after Scott Bessent warned that talks between the United States and China had stalled. He said that there was no progress being made since the meeting in Switzerland that lowered their tariffs.
In a statement, Bessent said that the next phase will require the input of Donald Trump and Xi Jinping because of the complexities involved. He said:
“I think that given the magnitude of the talks, given the complexity, that this is going to require both leaders to weigh in with each other.”
There are concerns that Washington has taken unilateral measures that don’t advance the relationship between the two countries.
For example, the administration is considering putting limits on the number of Chinese students in US universities. Such a move would mark an escalation since there are thousands of them in the country.
Trade concerns have continued
The US has also put limits on the sale of chips to China, a move that is costing American companies billions of dollars. In a statement this week, NVIDIA put the amount at about $8 billion, with the management arguing that China would move on without the US.
The US has also limited the sale of chip design software to China and some jet engine parts to Chna. Also, the US is working to limit the sale of Huawei chips anywhere in the world, a move that Beijing has condemned.
The Hang Seng Index is made up of many companies that have an exposure to mainland China. As a result, as the trade war escalates, analysts believe that many of these firms will be impacted.
Most Hang Seng Index companies tumbled on Friday, with Orient Overseas falling by 7.25% and Sunny Optical dropping by 5.5%%. The other top laggards were BYD, Lenovo, Anta Sports, Alibaba, and NetEase.
On the other hand, some of the top gainers in the index were CSPC Pharmaceuticals, Li Auto, Power Assets Holdings, and China Resources Power.
However, as we have written before here, many companies in the Hang Seng Index are not highly impacted by the US trade war. That’s because many of them don’t do a lot of business in the US. For example, BYD has become a giant auto company by focusing on mainland China and other countries.
Hang Seng Index technical analysis
The daily chart shows that the Hang Seng Index has rebounded from a low of H$14,740 in 2024 to a high of H$24,855 this year. It has now pulled back and remained above the 23.6% Fibonacci Retracement level.
The Hang Seng has remained above the 50-day moving average and formed a bullish consolidation pattern. Therefore, the most likely forecast is bullish, with the next point to watch being the psychological point at H$24,000. A move above that level will point to more gains, potentially to H$24,855.
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